Friday, April 8, 2011

Red State Rising

Richard Florida is a urban theorist, famous for his book "The Rise of the Creative Class". The book argues that since liberal cities with a large concentration of high-tech industries such as San Francisco and Boston have plenty of street musicians and gay bars, street musicians and gay bars must be causing the high-tech sector.

Because of its politically correct message, the book is popular among politicians and in the media. But due to the unsubstantiated claims of causality and shaky statistical evidence, it is not very well respected among economists. Harvard professor Edward Glaser reviewed Florida's statistical analysis, and found that Florida's correlations vanish or even reverse signs once you simply take the level of education in a city into account.

Richard Florida is back with an attack on conservative America in The Atlantic. He writes:"Conservatism, more and more, is the ideology of the economically left behind. The current economic crisis only appears to have deepened conservatism’s hold on America’s states."..." American politics is increasingly disconnected from its economic engine [liberal states]. And this deepening political divide has become perhaps the biggest bottleneck on the road to long-run prosperity."

Is conservatism the ideology of losers? Is the Republican Party the party of those who cannot make it on their own in the marketplace, and are hence bitter? Are liberal states the "economic engine" of America?

Well, let us start with the fact that a "state" doesn't take an ideological position, individuals do. Although rich states tend to vote Democrat, within states the richer you the more likely you are to vote Republican. So while Mississippi is poor, the poorest groups in Mississippi are Democrats. This is true for whites as well as minorities. This paradox been established by Columbia University's Andrew Gelman (whom Florida cites, so he can't be unaware of it).

Overall, the within state tendency of the economically successful to vote Republican is far stronger than the between state tendency of rich states to vote Democrat. In the United States, it is still true that the economically successful are more likely to vote for free-enterprise Republican and the unsuccessful to vote for welfare-state Democrats.

In 2008 in Georgia 70% of the voters who earned less than $30.000 voted for Obama, whereas only 40% of Georgia voters who earn more than $100.000 voted for Obama. The affluent in Georgia are Republican, whilst Democrat voters are those who are dragging down the state average. In Mississippi 66% voters who earned less than $30.000 voted for Obama, compared to only 23% of high income voters.

In poor white West Virginia, Obama got 62% of those making less than $30.000 but just 39% of those making more than $100.000. In other words, those WV Appalachian "Rednecks" that the media loves to demonize and portray as Republicans on closer observation turn out to vote Democrat. I could go on, the pattern is the same across all Red Stats.

This paradox that poor states vote Republican while poor Americans vote Democrat may be too subtle to understand for journalists, foreigners and causal observers of politics. We should however expect a professor writing in the Atlantic to make the effort. But of course we know why he didn't. The liberal audience of the Atlantic likes to be told that they belong to the party of wealth and success, while Republican voters are losers. Why spoil a good story with facts?

Let's go from states to the national averages. This is how individuals voted in 2010.

Of American voters who earn less than $30.000 per year 40% voted Republican, and the rest for Democrats.

Of Americans voters who earn more than $200.000 per year 64% voted Republican!

Does the Atlantic seriously want to claim that people who makes more than 200k per year are "economically left behind"?

None of this is really new, although Professor Florida apparently needs the reminder. Let's more forward to Florida's claim that liberal areas are the "economic engine" of America.

Red States, by which are mean states that voted for Bush in 2004, are on average poorer than Blue states, mainly due to having more poor Democrats.

However, during the last few decades the less regulated and taxed Red States have had faster growth than Blue states. According to the Bureau of Economic Analyses Regional Economic Accounts Between 1970 and 2010, real output increased by an average of 3.4% per year in Red States compared to 2.6% per year in Blue States. The real per capita growth rate of personal income in the Red States was 2.0% per year, compared to 1.8% per year in Blue States.

The graph below shows the convergence of per capita income. Note that this does not adjust for the cost of living, which is lower in Red States. One reason Red States have been growing faster is that they started at lower levels and are converging. Another likely explanation is pro-growth economic policies.

Job numbers in Republican states are even more impressive. Red States have been creating far more new jobs than Blue States. Part of this is that Red States have had enjoyed a better economic climate and consequently have been attracting more people over this period. Americans are voting with their feat, leaving Blue States for Red States.

The most striking number is that between 1990 and 2009 the Red half of America created 24 million new jobs, compared to only 12 million new jobs in Blue States. This means that Red States created two thirds of all new jobs in the United States between 1990 and 2009. These are the very states which Richard Florida claimed were increasingly falling behind. The Blue States, which Florida calls the "economic engine" of the United States, not only had lower income growth, but only added half as many new jobs as Red States.

Richard Florida's claims in the Atlantic may confirm liberal stereotypes, but have little support in economic data.

I wonder how much of the job growth is due to the higher birth rate of red states. I suppose birthrates are not exogenous though, cheaper housing, "better schools" and so on lowering the cost of family formation. Anyway with the exception of Massachusetts blue states are clearly falling behind.

This is very interesting. America's capitalist model has always attracted entrepeuners and innovators.

Does Professor Florida realize that all of these entrepeuners and innovators have chosen "backwards" and "religious" America over "urban" and "sophisticated" Europe.

There is an obvious reason why. It is the same reason that Red States are now attracting the business and capital that Blue States like California and New York used to attract.

It is simply because entrepeuners don't want to deal with the crushing taxes and regulations that Europe and Blue States bring. Not only are Red States leading in Economic Growth, but they are also leading in Population Growth.

Does anyone seriously think that California will be home to the next Economic Revolution?

Of course not. The rising economies, such as Texas, are where all of the businesses are going.

Good point, although by reporting the individual data we get to the lowest level of aggregation.

Austin is not as Blue as you think once you include the suburbs, in the 2010 house election metro-Austin voted Republican.

The city itself is of course Democrat, but the city alone only has 3% of the population of Texas, and is not that rich excluding the suburb. According to Wikipedia at least Travis country has a median income below the Texas average.

The trouble with the red/blue thing is that I think it misses much of the point. Florida misses the point too. He's really picking up libertarianism, I think. The growth in Austin and around is mostly young entrepreneur types. They actually tend to be blue, not because of redistribution but because of hot button social issues. Whether Silicon Valley, RTP, Austin, or wherever, the real growth areas are pretty blue, but I think that is due much to social issues.

I'm not interested in political debates and won't bother to give you sources. Being a social liberal and fiscal conservative, I follow neither party strictly and have no intention of supporting any particular conclusion. That being said, there are several issues in your analysis that I must bring up:

Sure, 70%, 66% and 62% of the "rich" may have voted republican in the likes of Georgia, Mississippi, and West Virginia. But what about the ~60% of the rich that vote democratic in states like California, New York, Massachusetts? I think we can both agree that CA, NY and MA has a lot more rich guys than GA, MI or WV. So even though it may conveniently seem like rich people vote republican percentage wise for certain states, you haven't posted any actual absolute numbers data for the US as a whole.

That is the second flaw you have. At the very beginning you shun state constrained cases (because state constrained cases obviously say rich states vote democratic), yet you use them anyway to illustrate your percentages? A voting trend by income analysis for the whole country would've been more helpful.

Third problem: You focus on a single election case of President Obama's 2008 run. Completely statistically unreliable considering people's short term opinions can change based on current events, social issues, merit of the candidate at hand etc. You have to analyze the trends going way back to at least 1950s.

Last problem, your arbitrary definition of poor and rich with $30k, $100k, or $200k cut-offs makes your results subjective and dubious. Just to illustrate (not claiming any statistic confidence since again this is only one election), apparently the majority of $50k to $100k (the section you conveniently excluded) earners voted for Obama in '08. Are they poor? rich? not rich enough? middle? What if you put your rich cut-off at $70k (skewed against your argument) or at $150k (skewed in favor of your argument in red states, and against in blue states)?

In the end, this seems like a pretty biased analysis over something that can be interpreted in multiple ways.

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"One reason Red States have been growing faster is that they started at lower levels and are converging."

Obviously this is a primary reason for higher growth in red states. Of course this doesn't support your bias, so you didn't pursue this avenue any further. But you can see the same thing happening internationally: for instance, as wages in China continue to increase, it also pulls up the wages of surrounding areas such as Vietnam. Wage discrepancies tend to diminish over time.

On a per capita basis, you showed that wages in red states are growing at 2% compared to 1.8% for blue states. How many more decades will it take for them to catch up, at that rate? Or would we have to measure it in centuries?

Regardless, blue states obviously are the engine that makes America run. That's why blue states recieve significantly less money in federal benefits than they pay in federal taxes. The opposite, of course, is true for red states. In other words: the red states recieve massive amounts of federal subsidies, which are paid for by democratic states. And even with this help, they still only manage to outgrow the blue states by 0.2%.

It's true that rich people tend to vote republican. That's because they believe this will be good for them on an individual level (which is incorrect). The state of the economy affects everyone, especially wealthy people who are more heavily invested in the stock market.

Next, let's observe the policy effects of each party at the federal level. When a democratic president is in office, on average, we have higher GDP growth, less unemployment, much greater stock market gains, lower deficits, less federal spending, and we create less debt, compared to when we have a republican president.

Several groups have done the hard work of adjusting US state and city incomes for the cost of living. The cost adjusted league tables for cities re located here: http://www.newgeography.com/content/002950-the-cities-where-a-paycheck-stretches-the-furthest

When you adjust for costs it turns out that the 5 highest income cities in America are (in descending order) Houston, San Jose, Detroit, Dallas-FW, Austin. San Jose has the highest nominal income but its ludicrously high cost of living drags down the real standard of living. Detroit is high on the list because it is a black hole with high wages and very, very low real estate costs. The three Texas cities are all growing between 25 and 40% per decade and owe their top of league stats to keeping the costs of housing, taxes, and other essentials low. I must also note that fully 50% of these remarkably rich Texans are 'disadvantaged minorities'.

So perhaps Mr. Florida can explain to me how is it that a state with such challenging demographics has the three richest and fastest growing large cities in the nation, indeed the world?

It's probably their retrograde religious and social attitudes whilst clinging to their guns and bibles.

Interesting that republicans don't see states as individuals, yet they are comfortable with allowing businesses to have the rights of one, despite not being one either.

Yes, liberal states ARE the economic engines of the country, always have been, and this fact is a key reason the civil war resulted in a union victory in the face of the superior fighting skills of the southern soldiers.

Next, your entire article completely neglects the issue of gender, a highly relevant sub topic, which also goes a long way to factoring in why lower wage earners might vote democrat: BECAUSE THEY ARE WOMEN (who statistically only earn around %75 of what men are paid). Once again, republocans throwing biased numbers around doing everything in their power to forget that women voters exist. Paradox? I think not.